Amendments to the Fair Trading Act 1987 (NSW) (the “NSW FTA”) which commenced on 1 July 2020 impose new disclosure obligations on affected businesses. There are two kinds of disclosure which have been made compulsory:
- disclosure by suppliers of substantially prejudicial terms and conditions for the supply of goods or services to consumers; and
- disclosure of financial incentive arrangements by intermediaries.
The amendments were made by the Fair Trading Legislation Amendment (Reform) Act 2018 (NSW).
Disclosure of substantially prejudicial terms (NSW FTA section 47A)
Before supplying a consumer with goods or services, a supplier must take reasonable steps to ensure that the consumer is aware of the substance and effect of any term or condition relating to the supply of the goods or services that may “substantially prejudice” the interests of the consumer.
The legislation provides that a term or condition may substantially prejudice the interests of the consumer if:
- it excludes the liability of the supplier;
- it provides that the consumer is liable for damage to goods that are delivered;
- it permits the supplier to provide data about the consumer, or data provided by the consumer, to a third party in a form that may enable the third party to identify the consumer; or
- it requires the consumer to pay an exit fee, a balloon payment or other similar payment.
This list in the legislation is not an exhaustive list, and so there may be other kinds of terms or conditions that may substantially prejudice the interests of the consumer.
It should be noted that the requirement relates to terms and conditions which “may” be substantially prejudicial, rather than those which are substantially prejudicial. Suppliers therefore might want to err on the side of caution when deciding which of their terms and conditions are covered by the new obligation. There is no definition of “substantially prejudice” in the legislation.
The requirement is not simply to disclose terms and conditions which may be substantially prejudicial: the supplier must also take reasonable steps to ensure that the consumer is aware of the substance and effect of them.
Disclosure of financial incentive arrangements (NSW FTA section 47B)
Before an intermediary acts under an arrangement that provides for the intermediary to receive a financial incentive, the intermediary must take reasonable steps to ensure the consumer who will be supplied with the goods or services is aware of the existence of the arrangement.
An “intermediary” means a person who arranges contracts for the supply of goods or services as an agent, or who refers consumers to another supplier of goods or services, in each case under an arrangement that provides for a financial incentive. In the context of financial services and credit, it could include a broker or a referrer.
A “financial incentive” means a commission or referral fee or any other kind of payment prescribed by the regulations.
As with the disclosure of prejudicial terms, the requirement extends beyond mere disclosure to taking reasonable steps to ensure that the consumer is aware of the matter.
This obligation does not require that the intermediary disclose the nature or value of the financial incentive, but only the arrangement that provides for the financial incentive.
It is the intermediary and not the person who will pay the financial incentive who must comply with this requirement.
Non-compliance and grace period
Failure to comply with the new disclosure requirements is an offence. In addition, penalty notices can be issued for contraventions.
However, NSW Fair Trading says that it will take an “educational approach” to compliance and enforcement for the period of six months from 1 July 2020 to 31 December 2020. During that period, NSW Fair Trading says that it will not “penalise businesses that have been identified as failing to comply with the requirements.”
The disclosure reforms may affect businesses based outside New South Wales who are dealing with customers in New South Wales. Section 5A of the NSW FTA says that the Act is intended to have extraterritorial application in so far as the legislative powers of the State permit, and that the Act extends to conduct either in or outside New South Wales that is in connection with goods or services supplied in New South Wales, or that affects a person in New South Wales, or that results in loss or damage in New South Wales.
NSW Fair Trading has published guidance on its website relating to the new disclosure obligations which is available here.
NSW Fair Trading notes that some businesses may already be subject to existing disclosure obligations under other laws and that for many businesses, these reforms might not require any change to existing operational practices.
The following examples are given by NSW Fair Trading of methods that might be used to make the required disclosures:
- Short, plain English summaries on the front page of a contract.
- Providing information in short chunks at key times for the customer, such as on the information or payment page.
- Making information online appear on screen in a scrollable text box.
- Using comics, illustrations or icons to highlight and explain relevant information.
According to NSW Fair Trading, “the best way to know that you have taken reasonable steps to make the customer aware is to check with them directly.” NSW Fair Trading suggests that this could be done by various methods such as verbal confirmation, initialling a contract, or checking a box on a web-form.
The NSW Fair Trading guidance says that the target market of customers should be considered – for example, whether they are young, from diverse language groups or otherwise vulnerable. This implies that the steps you might need to take to ensure customer awareness could be different for different kinds of customers.
Please contact us if you need advice on these new provisions.
Patrick Dwyer and Kathleen Harris
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